As the final weeks of California’s legislative session tick down, Hollywood unions are racing to secure an exemption for film and TV productions from a new law that they warn could derail the state’s efforts to halt the decline of jobs available for entertainment workers.
On June 29, Gov. Gavin Newsom signed Senate Bill 122 into law as part of the state’s budget package. Included in that law is language that caps the amount of tax credits that a business can receive annually to 70% of its liability or $5 million, whichever is greater. The bill was passed in an effort to reduce strain on California’s budget by preventing companies, particularly those in the tech sector, from completely erasing their tax liability through research and development credits.
The Entertainment Union Coalition warns that this rule would make it prohibitive for productions, particularly high-budget productions that employ a significant number of actors and crew members, to film in California as it would take several more years for studios to receive the full value of the tax credits they earn based on eligible in-state spending compared to other major production hubs like New York, Illinois, Canada and the United Kingdom.
This comes a year after lawmakers voted to dramatically increase the size of California’s production incentive program from $330 million to $750 million, leading to more than 110 film, television and animation projects to qualify for credits. While the expansion has yet to have a major impact on California production — ProdPro reported a 5% year-over-year increase in production spending in the state last quarter — the EUC says that it expects more progress but only if producers and studios can be certain that they can reap the benefits of the program after completing payments to workers and vendors.
“This back-end cap on tax credits only makes it more difficult for productions to fully monetize the credits that were already accounted for in the state budget. The back-end cap will also make it harder for independent productions to sell their tax credits to buyers or even get financing from banks, making it difficult for them to secure the financial backing necessary to start projects,” the Entertainment Union Coalition wrote in a memo.
Over the past two months, Hollywood unions have raised alarms to members over SB 122, urging them to get in contact with their representatives. The EUC says that over 350,000 letters have been sent by union members to Sacramento lawmakers.
The drop-dead date for lawmakers to pass some form of exemption for productions is August 31, the final day of the legislative year in Sacramento, with all bills required to be submitted in writing at least three days prior. Hollywood Asm. Rick Chavez Zbur tells TheWrap that he and his colleagues do not want to run up against that deadline.
“We’re currently in the process of discussing all of this with the independents, the studios, the Entertainment Union Coalition, and with Gov. Newsom and legislative leaders, and now we are in the process of building out a fix that would mitigate the impacts that SB 122 has on this program,” he said.
Union insiders say that several options are being weighed, including an outright exemption from SB 122 for independent productions that would allow producers to continue the current practice of transferring the credits to buyers as part of financing deals for their projects.
But there are still disagreements over extending such an exemption to major studio productions. Proponents such as the EUC and the Motion Picture Association have argued that a full production exemption from SB 122 is necessary for the expanded incentive program to fulfill its intended purpose as a jobs program at a time when entertainment workers have moved out of California in search of employment or switched career paths entirely.
But insiders tell TheWrap that there is concern that offering such an exemption would lead to outcry from other major industries, including tech companies, who would call for SB 122 carveouts of their own.
Another bill expected to come up for a vote before the session adjourns is AB 2319, a bill that would create a 35-50% refundable tax credit for productions that do their post-production work in California, even if principal shooting is done outside of the state.
The bill was passed through the State Assembly earlier this summer and is expected to receive a floor vote by the State Senate in the final week of the session with the hopes of also securing as much as $100 million in funding as part of a separate budget trailer bill.
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